Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 233

Asset class performance and lessons in 2017

Better than as good as it gets

2017 goes down in history as the 6th consecutive year of positive real total returns from all major asset classes for Australian investors – Australian shares, global shares, Australian and global bonds, listed and unlisted commercial property, housing and bank deposits. Six straight years when everything went up has never happened before in history.

Click chart to enlarge

The next longest period was four positive years in 1925-28 during the great post-war housing and government spending boom. No prizes for what happened next: the 1929 crash, 1930s depression and defaults by NSW and Commonwealth governments.

Periods of negative real returns from the major asset classes together are relatively rare and short-lived. There were only four individual years where major asset classes posted negative returns together:

  • 1912 –War build-up in Europe, US dismantling the Money Trusts, Titanic sinking
  • 1941 – Hitler invading Russia, Pearl Harbour bombing, Japanese army storming down through Asia.
  • 1948 – Industrial unrest, communist agitators, Australian bank nationalisation crisis, Soviet blockade of Berlin
  • 1973 – Australian monetary tightening, severe credit squeeze, Britain entering ECM, USD devaluation, Yom Kippur oil crisis

What is the common thread that runs through all of these positive and negative return periods? Inflation.

Each of the periods of across-the-board negative real returns had high inflation. Conversely, each of the periods of across-the-board positive real returns had low inflation, including the current six-year rally.

Will markets remain positive for another year to make it seven years in a row? All types of assets everywhere are expensive, but shares, property and bonds tend to do well when inflation and interest rates are low. The good news is that inflation and interest rates are still very low in Australia and around the world and are likely to remain that way for some time yet.

Portfolios and lessons

With each of the main asset classes posting positive returns in 2017 it was difficult to lose money.

Click chart to enlarge

The active positions that paid off for investors in 2017 include:

  • In Australian shares – bias toward small/medium versus large companies paid off as the big banks dragged on the market
  • In global shares – over-weighting ‘emerging markets’ shares paid off as Chinese tech stocks in particular were very strong
  • In global shares – bias toward hedged versus unhedged as the AUD rose
  • Within fixed rate bonds – bias toward corporate versus government bonds paid off as credit spreads contracted but no benefits from running floating versus fixed rate bonds.

As far as regrets go, it is easy to look back with the benefit of hindsight and say (for example), “We should have had more global shares”. However, it was hard to argue for an overweighting to global shares when they were so expensive at the start of the year and with the Brexit vote and Trump election so fresh in the minds of our investors.

 

Ashley Owen is Chief Investment Officer at advisory firm Stanford Brown and The Lunar Group. He is also a Director of Third Link Investment Managers, a fund that supports Australian charities. This article is general information that does not consider the circumstances of any individual.

 


 

Leave a Comment:

RELATED ARTICLES

Only 2.4% of companies deliver all net shareholder wealth

Spotting signs of trouble in a retirement portfolio

Where do Australian share returns come from?

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

Latest Updates

Investment strategies

9 winning investment strategies

There are many ways to invest in stocks, but some strategies are more effective than others. Here are nine tried and tested investment approaches - choosing one of these can improve your chances of reaching your financial goals.

Planning

Super, death and taxes – time to rethink your estate plans?

The $3 million super tax has many rethinking their super strategies, especially issues of wealth transfer on death. This reviews the taxes on super benefits and offers investment alternatives.

Taxation

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

Shares

The megatrend you simply cannot ignore

Markets are reassessing the impact of AI, with initial euphoria giving way to growing scepticism. This shift is evident in the performance of ASX-listed AI beneficiaries, creating potential opportunities.

Gold

Is this the real reason for gold's surge past $3,000?

Concerns over the US fiscal position seem to have overtaken geopolitics and interest rates as the biggest tailwind for gold prices. Even if a debt crisis doesn't seem likely, there could be more support on the way.

Exchange traded products

Is now the time to invest in small caps?

With further RBA rate cuts forecast this year, small caps may be key beneficiaries. There are quality small cap LICs and LITs trading at discounts to net assets, offering opportunities for astute investors.

Strategy

Welcome to the grey war

Forget speculation about a future US-China conflict - it's already happening. Through cyberwarfare and propaganda, China is waging a grey war designed to weaken democracies without firing a single shot.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.